Never this cheap again?

Cars have never been this cheap, runs the advert. For once, it's true. If you feel you will need a new car in the next few months, or simply fancy upgrading to something a bit more swish, now's the time to act - for two reasons.

First, car prices have been falling like a stone in recent months. They really are the lowest they've ever been in real terms. In some cases, cars are being offered for sale at half price.

Second, prices appear to have just hit bottom - and could be about to rise again. Despite numerous reports that new vehicle sales are at their lowest level since the Romans introduced chariots to Britain, manufacturers have reacted to the fact that they can't shift their fields of unsold cars by upping prices.

Two weeks ago, both Ford and Vauxhall said they were increasing their list prices by 4.7% and 5% respectively. They blamed the decline of the pound against the euro for the increase. Audi also increased its prices recently.

And, after months of decline, reports from the auction halls suggest that used car prices have risen by £300 since December as buyers started coming back into the used market.

It all adds up to one thing: if you have a bit of money stashed away and you do need a new car, prepare to become one of the few winners of the credit crisis.

New cars at half price

One internet car broker this week was putting together what will be a UK first - a three-cars-for-the-price-of-one deal. Simon Empson, managing director of the Essex-based car broker Broadspeed.com, made headlines last year after offering two Kia Magentis models on a "bogof" (buy-one, get-one-free) deal and says he is now hoping to go one better. "Buyers of certain cars have never had it so good, and we have plenty of new or nearly new cars on our books that are now half price," he says. "Cars aren't half price across the board, but you should be able to get 30% to 40% off almost everything in the mainstream."

Empson says that manufacturers, desperate not to kill the used value of their models, have increasingly been pre-registering the cars and then offering them in an "as-new" condition with just a few miles on the clock. They have also cut lease costs as a way of disguising the price paid by the buyer. It's now possible, for example, to lease a Mercedes saloon for the same monthly payment as a Ford Mondeo.

The savings can be eye-watering. Broadspeed currently has new Chrysler 300C luxury saloons for £17,995, while the list price is close to £35,000. Those looking for a more environmentally friendly car should look at the broker's Kia Cee'ds. These have a list price at close to £14,000, but Empson is selling models that are a few months old, with 2,000 miles on the clock, at under £8,000. These cars have a 1.6 diesel engine that will average more than 60mpg, and they come with an unrivalled seven-year warranty.

A new Fiat Panda 1.1 Active, list price £7,095, is for sale at £5,141. Empson has also just delivered a new petrol Ford Mondeo that sold for almost £14,800. This car, which is very popular at the moment, lists at around £24,000.

Richard Headland, editor of Which Car?, agrees that this is a phenomenal time to buy a car. "If you have the cash and your job is safe, there are some stonking bargains out there - particularly for new cars. We recently found Fiat Pandas being sold new for less than one-year-old models at dealers. Consumers are probably getting some of the best-ever deals, if they are prepared to spend a bit of time finding them. Car makers have said that prices are set to rise, although it remains to be seen whether this will actually feed through. You may find the list prices go up, but the discounts just get even bigger."

Used cars

Used cars are also offering previously unseen value for money, especially among bigger models. If you bought a new Vauxhall Vectra estate in the past year, you may want to look away now because these have collapsed in value. This week, the Slough-based car supermarket TradeSales.co.uk is offering a nine-month-old 1.8 model, with 18,000 miles on the clock, for less than £6,000. Yet these cars were selling for around £15,000 just nine months ago.

Darren Miller, of the west London super-site Cargiant.co.uk, which specialises in selling three-year-old ex-fleet cars, says there have been some spectacular bargains in their halls, particularly for bigger-engined cars.

"Smaller cars have been holding their value much better, but last year's big petrol price hike knocked the 4x4 sector for six," he says. "Grand Cherokee Jeeps that were selling for £10,000 last March, have been going for £4,999. High-mileage, three-year-old, Mercedes-Benz C180 saloons can now be bought for less than £6,000.

The Cargiant website features a three-year-old Mercedes-Benz 4x4 ML350 that would have cost around £34,000 new. It has done just 20,000 miles and is now selling at £9,499. The fact that it averages 20mpg gives a clue why it has dropped some £25,000 in three years. Wait a few months, and it will probably drop even more.

Meanwhile Tony Gannon, a director a British Car Auctions, says used car values may finally have stopped falling. "What we are seeing now is an improvement in values from a low base. This suggests motorists are now more confident to buy used cars. After all, they remain exceptional value."

Is financial help on its way?

Cars may be cheap, but the problem for potential buyers is that it has become virtually impossible to obtain finance. Simon Empson of Broadspeed says buyers who previously never had a problem meeting lenders' criteria now find themselves turned down.

There might be help on the way from the government, which is considering various schemes to assist the ailing car market. There have been rumours of a VAT-free holiday, or £2,000 grants for those willing to scrap their old banger and replace it with a new low-emissions car. However, as many car discounts have now already gone below the 15% VAT level - Citroën is already offering VAT-free deals - it probably wouldn't make much difference to the real prices paid.

Such a move would, of course, help anyone daft enough to go into the local dealer and pay the price shown in the window without asking whether a better discount is available elsewhere.